A post-G20 world

The two biggest questions hovering in the minds of many investors on Monday are probably ‘will the US and China be able to strike a great deal after 90 days?’ and ‘how sustainable is this rally?’.

Indeed the G20 marks a positive start for trade negotiations and a ceasefire in tariffs, but it is probably not realistic for the US and China to sort out all the problems within the 90-day cooling period. As long as both sides are open to negotiations rather than shutting down discussions and going back to tariffs, the market will be very happy to see that.

A temporary ceasefire of trade tariffs will pave the way for better-prepared negotiations and more thoughtful decisions for both sides, considering that globalisation has set the ground of economic prosperity in the past few decades and trade tariffs are not the best solution for current issues.

Going forward, both sides will have to recognise that some kind of compromise will have to be made. The challenge for the US and China is to work out a middle ground that will allow the two profoundly different economic system to coexist. This means that the US will need to realise that it is impossible to stop China from integrating its supply chain and moving into higher-end manufacturing clusters. And China should execute higher standards of transparency and compliance with regards to its trade practices in the areas of intellectual property protection, cyber security and technology transfer.

Singapore’s STI rallied 2.5% or 80 points on Monday, registering its biggest one-day gain in more than six months. This is probably due to a ‘knee-jerk reaction’ boosted by a positive G20 outcome and short-covering activities. Going forward, market focus will likely to shifted back to fundamental elements – monetary policy, corporate earnings and macroeconomic shifts. This Friday’s US nonfarm payroll will be a key data to watch as it might signal the approval of the last interest rate hike for this year.

Asian equities retraced mildly this morning, probably due to profit taking and reassessment of US-China truce by investors. Qatar’s planned departure from Opec threatened the oil-committee’s unity and dampened oil prices, albeit that Qatar is a marginal contributor of the group’s total oil output. It pumps about 0.6 million bpd of crude oil, comparing to more than 27 million bpd from all Opec members.

Besides Qatar, investors are eyeing closely on this Friday’s Opec meeting in Vienna, in which market anticipates around 1.4 mil bpd output cut to be reached by the committee. Global oil market is in a glut situation with US crude production hitting historical high of 11.47 million bpd, according to US Energy Information Administration (EIA), and US commercial inventory climbing for eight consecutive weeks. Technically, Brent - Cash contract has shown some early signs of bottoming up, with its MACD forming a bullish crossover and DMI bearish channel starting to contract. A breakout above its SuperTrend (10 2) and the subsequent flipping of SuperTrend into green colour will be a signal of trend-reversing.

Crude Oil Brent - Cash chart

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